Thread: Donald Trump tries to clean up economic comments

Donald Trump tries to clean up economic comments

By MJ Lee, CNN National Politics Report
Updated 6:54 AM ET, Tue May 10, 2016

(CNN)Donald Trump, one of America's best-known businessmen, spent Monday trying to clean up his comments about the economy.

Trump was under fire for comments on U.S. fiscal policy that were not only out of step with his party -- but in some cases were a reversal of his own positions during the primary.

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He sparked concerns last week, for instance, when he dubbed himself the "king of debt" in an interview on CNBC and said he would be open to renegotiating U.S. public debt by treating the interaction like a business deal.

But on CNN's "New Day" Monday, Trump said he never meant to suggest he would want the U.S. to default on its debt. In fact, Trump said, the country would never face such a potential outcome because it can "print" money.

"People said I want to go and buy debt and default on debt, and I mean, these people are crazy. This is the United States government," Trump told CNN's Chris Cuomo. "First of all, you never have to default because you print the money."

Why Donald Trump's debt proposal is reckless

That did little to satisfy economic experts who view U.S. bonds as one of the safest investments in the world and are leery of any talk of default.

Trump also tried to walk back his comments on taxes. Appearing on the Sunday morning shows, Trump suggested the wealthiest Americans were likely to pay more taxes under his administration. The remarks raised eyebrows, both because they conflict with his past promise to slash taxes across the board, as well as the GOP's broad support for tax breaks for all income brackets.

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"From a practical standpoint, it's going to get renegotiated," the New York businessman said about his tax plan on ABC's "This Week." "And in my opinion, the taxes for the rich will go up somewhat."

But during the "New Day"interview, he said he was referring to his willingness to consider changes to his own tax plan rather than the existing tax code. He insisted that wealthy Americans would ultimately pay a lower rate than what they are paying now.

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"If I increase it on the wealthy, they're still going to pay less than they pay now," Trump told Cuomo.

Later in the day, Trump tweeted: "Any negotiated increase by Congress to my proposal would still be lower than current!"

Democratic front-runner Hillary Clinton's campaign moved quickly to capitalize on the distraction.

On a call with reporters Monday afternoon, Clinton's advisers dubbed Trump's tax plan "the most risky, reckless and regressive tax proposal ever put forward by any major presidential candidate."

Nightcap: Paul Ryan gives Donald Trump an out on convention | Sign up

"His tax plan proves that he is on the side of the wealthy and the big corporations and not the middle class and we fully intend to hold him to it," said Jake Sullivan, Clinton's policy adviser.

Trump clearly sought to move beyond the brouhaha Monday and pivot to the general election. Though the race is six months away, he appointed New Jersey Gov. Chris Christie as chairman of his transition team.

That announcement came days after he hired Steven Mnuchin as the campaign's national finance chairman -- another key hire.

http://www.cnn.com/2016/05/09/politi...-up/index.html

"His tax plan proves that he is on the side of the wealthy and the big corporations and not the middle class and we fully intend to hold him to it," said Jake Sullivan, Clinton's policy adviser.

Well, lets see. What is wrong with being on the "side of the wealthy and the big corporations"? Isn't it the big corporations he's going after to end this free trade treason debacle? Isn't it the big corporations and their wealthy executives and shareholders whose ears he's going to box until they stop leaving the US and start bringing their overseas operations back home when they're producing to sell in our market? Isn't it the big corporations that he wants to tax 35% of every item and service until they bring those plants and operations home where they belong? Isn't it the big corporations and or the wealthy who hire illegal aliens and isn't Trump going to round up all the illegal aliens, deport them out of here and build a great wall to keep them out?

Yeah, it is. It's Trump who is doing all that.

In return, he's going to drop the business income tax rate to 15% and drop the top wealthy rate down to 25%.

So go ahead and tell US whose side who is on as if we didn't already know. Clinton is on the side of the globalists wrecking our economy, impoverishing our people, and bankrupting our treasury. THAT is "on the side of the wealthy and big corporations", not telling the wealthy and their big corporations, you bring your operations back to the US or we'll tax your butts 35% on every dime of product you ship in here from another country.

Poor Jake. Such a silly policy advisor.

I love it when you pretend to be an expert on every issue.

We just laugh and laugh.

Who owns America's debt?

by Heather Long @byHeatherLong
May 10, 2016: 2:25 PM ETwhy Trump's debt

Donald Trump says he can "make a deal" on America's debt.

Last week, he implied that he could negotiate with America's creditors to get them to accept a lower rate of repayment, such as 85 cents for every dollar.

It sounds shrewd, until you think about who would get hurt under this scenario. Who exactly owns the $19 trillion-plus of U.S. debt?

There's been a lot of attention in recent years over China rising to become one of the largest holders of U.S. debt. China's share of the debt is sizable -- about 7% -- but it's hardly the largest holder of U.S. government bonds.

The top holder by far is U.S. citizens and American entities, such as state and local governments, pension funds, mutual funds, and the Federal Reserve.

Together they own the vast majority -- 67.5% -- of the debt.

Foreign nations only hold 32.5% of the total.

Related: Why Donald Trump's debt proposal is reckless



Trump's proposal stunned the financial world. The U.S. government is the world's safety net. Lenders expect the U.S. Treasury to always make good on its payments.

"The global financial system is built on the notion that U.S. Treasuries are absolutely safe assets," economist Doug Holtz-Eakin told CNN's Jake Tapper Monday.

"If he were to put a crack in that foundation, the global financial system would crater and we would have a global economic recession."

Renegotiating debt terms is a common practice among companies in financial trouble.

Creditors are willing to accept lower payments because that's preferable to getting nothing. However, the U.S. government isn't a "junk bond" company.

Trump walked back his debt deal making comments when he appeared on CNN's "New Day" show Monday morning as the outrage grew.

Related: Foreign governments dump U.S. debt at record rate

What's important to remember is that any debt negotiation is really a deal with U.S. citizens.

For years, grandmas and grandpas gave their children and grandchildren U.S. bonds to encourage them to save and grow their money. Retirees buy bonds because they are safer than stocks and provide more stable monthly income. Investors of all ages hold U.S. bonds to make their retirement and investment portfolios less risky.

"A lot of people who own the debt are in the U.S. Why would I want to get paid less on my debt than when I bought it?" says Maya MacGuineas, an expert on government debt and budgets. She is president of the Committee for a Responsible Federal Budget.

Of the $12.9 trillion chunk of debt owned by Americans, $5.3 trillion is held by government trust funds such as Social Security, $5.1 trillion is held by individuals, pension funds and state and local governments and the remaining $2.5 trillion is held by the Federal Reserve.

Outside the U.S., China is the largest foreign holder of the debt, with $1.25 trillion. It is followed closely by Japan, which holds $1.13 trillion.

http://money.cnn.com/2016/05/10/news...hip/index.html

It's a great plan. It's what these people do every day anyway. They buy T-bills for example at auctions and trade them at discounts. They can cash them and bonds and other government securities in at a discount, take their money and reinvest in something else. The government can save 15% on the face value and the securities holders still make money because they bought them under par value to begin with. No one gets "hurt".

Judy
Gov jan Brewer open to being Vice President for trump I just saw this she a sweet lady

Originally Posted by southBronx

Judy
Gov jan Brewer open to being Vice President for trump I just saw this she a sweet lady

Yes, she is and tough as nails, too. I still think Scott Brown is the best choice to win the General Election. He is so articulate, so smooth, charismatic, tough, loyal to Trump, and agrees with all of Trump's positions and has for many years.

I love Jan Brewer. I just think we need someone with military experience and Scott Brown has that, 35 years in the US Army National Guard, JAG Unit, and this is something that could be really important if things get nasty overseas. I don't hold a lot of trust in some of our Generals any more. They can't seem to figure out how to win it and wrap it up.

Why Donald Trump's debt proposal is reckless

by Heather Long @byHeatherLong
May 9, 2016: 3:46 PM ET

Donald Trump dubs himself the "king of debt." Experts say he doesn't have a clue -- at least when it comes to U.S. government debt.

Only a few weeks ago, Trump said he could eliminate federal debt in just eight years, a nearly impossible task. Trump's own tax plan would add trillions to the debt.

Now he says the U.S. should just borrow more and renegotiate the terms later.

"I would borrow, knowing that if the economy crashed, you could make a deal," Trump said on CNBC last week.

The reaction on Wall Street and in Washington was that Trump can't be serious. U.S. bonds are seen as one of the safest (if not THE safest) places to put your money in the world. Tinkering with that would almost certainly hurt America for years to come.

"Mr. Trump doesn't have a coherent idea of what he's talking about," says Michael Strain, an economic policy expert at the American Enterprise Institute, a conservative think tank. "This is the bond market equivalent of 'we're going to build a wall and have Mexico pay for it.'"

Related: Donald Trump: 'I'm the king of debt'

Trump tries to clarify his debt plan
Paying creditors back anything less than the full amount calls into question the "full faith and credit" of the United States.

"People would read this as a default," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "It's saying we're not repaying you what you're owed."

On Monday, Trump walked away from those comments. He told CNN's Chris Cuomo he was misquoted.

"First of all, you never have to default because you print the money," he said on CNN's "New Day."

Trump says what he really wants to do is have the government find a way to buy some bonds back at a cheaper price. It's a fairly common practice for companies with "junk bonds" that are in financial duress.

But Strain, MacGuineas and many others say it would be a disastrous tactic for the United States government.

Related: Donald Trump won't bail out Puerto Rico

The problems with Trump's debt buyback plan
First of all, businesses typically buy back debt when they are in trouble. It's seen as a red flag. Investors agree to accept less money because they would rather get 80 cents on the dollar than nothing. The U.S. would have to be in terrible economic shape for this scenario to be an appealing idea.

Second, it would alarm investors in the U.S. and around the world to see the trusted U.S. Treasury playing games in the bond market. It could cause huge uncertainty, and possibly raise U.S. borrowing costs for years as investors demand higher interest payments. Other nations like China might even retaliate with trade sanctions or other economic tactics.

Third, if Trump buys back bonds at a lower price, it doesn't just hurt the Chinese and Japanese who hold the debt. It would also harm millions of Americans who hold U.S. bonds in their retirement and savings accounts.

Fourth, the federal government doesn't have any money to buy debt back with. The U.S. already has $19 trillion in debt. Trump's plan would require the U.S. Treasury to issue new debt to buy old debt.

Or it would require the Federal Reserve (America's central bank) to buy the debt. That can cause inflation (or even hyperinflation), and send prices of everything from food to rent skyrocketing.

And that's to say nothing of the fact that the president doesn't control the Fed, so it's unclear how Trump could even get more money into the economy that way.

"Trump's recklessness has no limits, even to the point of suggesting Treasury debt restructuring. He's playing with matches in a very arid forest," wrote Greg Valliere, chief investment strategist at Horizon Investments, in his morning note Monday.

Related: Trump's latest wild claim: He'll fix the debt in 8 years

Wall Street dismisses the latest idea

Trump's full quote from CNN on Monday morning is below:

"I said if we can buy back government debt at a discount, in other words, if interest rates go up and we can buy bonds back at a discount -- if we are liquid enough as a country, we should do that," he said. "In other words, we can buy back debt at a discount."

Many on Wall Street shrugged off this latest proposal as so out there it isn't even worth considering.

"The U.S. is not falling off a cliff any time soon," says Guy LeBas, chief fixed income strategist at investment firm Janney. LeBas thinks it would take a worse disaster than the Great Recession to make Trump's plan remotely worth considering.

http://money.cnn.com/2016/05/09/news...ex.html?iid=EL

Fourth, the federal government doesn't have any money to buy debt back with. The U.S. already has $19 trillion in debt. Trump's plan would require the U.S. Treasury to issue new debt to buy old debt.

It's called re-financing. When you retire the old debt with the new debt at a 15% discount, the old debt goes off the books and you've reduced your debt by the amount of the discount. It's done every day in business and is definitely worth looking into. There is nothing at all "reckless" about it. Something has to be done to reduce this debt, so unless someone else has a better idea, people should learn how this works and see if it makes sense in this instance. Interest rates would need to be higher, and they will be eventually, so this low interest debt will want to be changed out and freed up by the creditors so they can go invest in higher earnings opportunities. It's actually doing them a favor. Otherwise they'll be trading it off at probably much higher discounts that benefit the buyer when under Trump's plan or idea, it could benefit the US Treasury and American Taxpayers.

Donald Trump’s bizarre explanation of how the national debt works

By Max Ehrenfreund May 9

Donald Trump speaks in Jupiter, Fla., on March 8. (Cristobal Herrera/European Pressphoto Agency)

Donald Trump raised a ruckus with his comments about the national debt last week, when the presumptive Republican presidential nominee seemed to suggest that the U.S. government might not pay all of what it owes.

Bonds issued by the Treasury Department are considered some of the most dependable securities in the world, and if a future Trump administration didn't honor them, the consequences for the global economy could be disastrous.

Trump acknowledged these realities in an interview on CNN Monday morning, saying he never meant to suggest that the United States default on its sovereign debt and accusing the media of misrepresenting him.

"It was reported in the failing New York Times and other places that I want to default on debt," Trump complained. "I'm the king of debt. I understand debt probably better than anybody. I know how to deal with debt very well. I love debt."

Just what he was suggesting remained unclear, however. Trump said the U.S. government could repurchase some of its current debt at a discount, as private businesses do, but he apparently went on to give a couple of reasons why this strategy would not serve any financial purpose in the context of federal economic policy.

First, Trump explained -- correctly -- that because the U.S. government prints its own currency, the country should never have to default on its debt. The government can print more money to repay the debts, which would cause inflation but not a default.

"This is the United States government," Trump said. "You never have to default because you print the money, I hate to tell you. Okay, so there’s never a default."

[There is math, there is fantasy math, and then there's Donald Trump's economic math]

Then, Trump went on to suggest that the Treasury could somehow repurchase bonds that are currently in circulation, effectively paying back the debt early. If interest rates increased, then bondholders might be eager to sell the debt they purchased previously at cheaper rates, because they could make new investments with the money that would pay more lucrative rates.

The Treasury, Trump suggested, could buy back those old bonds from investors for less than their face value, reducing the outstanding debt.

Private firms use this strategy often to reduce their debt. A company might borrow money to make some kind of initial investment. If interest rates increase as they reap the profits, the firm can use the money to buy back the debt for less than the amount they borrowed.

This strategy doesn't always improve a firm's financial situation, however. If the firm doesn't have enough cash to make the purchases, then borrowing money to do so won't help, because the firm would be borrowing at a higher interest rate.

That is more similar to the U.S. government's current situation. Since the federal government operates at a deficit, any repurchases would have to be funded through borrowing, and that money would have to be borrowed at an increased interest rate, canceling out any savings.In fact, the liberal Center on Economic and Policy Research published a brief considering exactly this financial maneuver in 2013.

Repurchasing old debt "doesn't change the interest burden one iota," said economist Dean Baker, a director of the center. "It’s utterly meaningless."

Trump seemed to acknowledge these shortcomings of his ideas during the interview on CNN. "If interest rates go up and we can buy bonds back at a discount, if we are liquid enough as a country, we should do that," he said. The United States is not liquid enough to make the purchases -- that is, the government would have to borrow the money to do so.

Trump also seemed to concede that investors wouldn't take him up on the offer to repurchase debt -- after all, they can sell their debt anytime they want on the global market for bonds issued by the Treasury.

"With the government, they’re never going to walk in and say, 'Do me a favor, will you buy my debt at a discount?' " Trump said.

Yet Trump didn't recant his proposal. "Here's the story, just to have it corrected," he said. "If we have an opportunity, where interest rates go up and you can buy debt back at a discount, I always like to be able to do that if you can do it."

https://www.washingtonpost.com/news/...al-debt-works/